Presidential Ordinance on the cards

ISLAMABAD: A presidential ordinance is on the cards to withdraw sales tax exemptions, zero-rating, and reduced sales tax rates to the tune of Rs330 billion in the next 10-15 days.

Sources told Business Recorder here on Wednesday that the income tax measures would not be taken at this stage.

It has been agreed to take taxation measures on the sales tax side before the next budget.

The sales tax exemptions, sales tax zero-rating and all kinds of reduced sales tax rates may be subjected to standard rate of 17 percent sales tax.

According to sources, the government has assigned Federal Board of Revenue (FBR), Law Division and Finance Ministry to start working on the drafting of the Presidential Ordinance. Mainly, Law Ministry and FBR would work on the said assignment.

As a result of withdrawal of sales tax exemptions of Rs 330 billion, the FBR’s revenue collection target is expected to be increased by Rs 330 billion for the current fiscal year (2021-22).

Presently, the FBR is chasing a revenue collection target of Rs5829 billion for year 2021-22.

If the Ordinance is promulgated in the next 10-15 days, it would be called Tax Laws (4th Amendment) Ordinance, 2021.

Through the Ordinance, the Sixth Schedule (Exemption Schedule) of the Sales Tax Act 1990 would be completely revamped. Except essential food and health items, the government will withdraw sales tax exemptions from the Sixth Schedule.

Sources said that the government may impose 17 percent sales tax on cellular mobile phones in CKD/CBU form under the Ninth Schedule of the Sales Tax Act 1990.

The government will also withdraw all kinds of sales tax zero-rating except exports.

The Ordinance would have six major components: (i) No zero-rating; (ii) 17 percent sales tax on mobile phones: (iii); withdrawal of major sales tax exemptions; (iv): continuation of exemptions or zero-ratings on essential food items and health items; (v) imposition of standard rate of sales tax on reduced rates items, and (vi) withdrawal of sales tax exemption subjected to conditions or conditional exemptions.

According to the economic survey 2020-21, the cost of sales tax exemptions totalled at Rs 578.456 billion in 2020-21 against Rs518.814 billion in 2019-20, reflecting an increase of Rs59.642 billion; income tax, Rs 448.046 billion against Rs 378.03 billion, showing an increase of Rs 70.016 billion, and cost of customs duty exemptions was Rs 287.771 billion in 2020-21 against Rs 253.111 billion in 2019-20, reflecting an increase of Rs 34.66 billion.—SOHAIL SARFRAZ